Sons of Gwalia digs itself into a big hole
By Michael Weir
February 20 2003
Sons of Gwalia was on the verge of a crisis yesterday after it abandoned its interim dividend for the first time in more than 10 years and said it would struggle to meet its already revised full year net profit.
The company revealed it was cash-flow negative to the tune of $21.6 million for the six months to December 31 and had no cash in the bank due to the crippling impact of its hedge book, operational problems in its gold division and the severe down-turn in the global market for tantalum, of which Sons of Gwalia is the world's biggest producer.
The company's decision to conserve cash - it would have cost $12 million to maintain the 7.5c dividend paid in the second half last year - was seen as evidence the problems were bigger than the market first thought.
Its shares plunged a further 22c, or 12 per cent, to a fresh 11-year low of $1.61.
The latest fall leaves the miner valued at just $305.2 million compared to $1.33 billion 12 months ago and raises further questions about the future role of founding directors Peter and Chris Lalor.
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Sons of Gwalia reported a 79 per cent slump in net profit to $7.2 million for the December half, which included significant items of $3 million.
The company had negative operating cash flows of $21.6 million, which included $13.2 million in interest payments on the company's $385.4 million debt, and exploration expenditure of $7.2 million.
Sons of Gwalia had no cash in the bank at December 31 and a bank overdraft of $1.3 million, although it had deposits at call of $9.7 million and gold on its metal account of $16.2 million.
Gold division earnings before interest and tax (EBIT) fell to $2.5 million, compared to $30.6 million in the previous corresponding period, while tantalum generated EBIT of $28.7 million, down from $34.5 million.
Executive chairman Peter Lalor would not return calls yesterday, but said in a statement the gold division had been hit by lower-than-forecast production and higher costs. Tantalum was hit after the company was forced to cut production due to a slump in demand, he said.
The company said it would "not be prudent, nor good business practice" to pay a dividend to the company's 17,000, mostly small shareholders.
It also said it would decide on a final dividend when the full-year result was known.
The company said it expected the second-half profit to be higher.
"I hope this is as bad as it gets," Euroz Securities analyst Andy Clayton said. |
